Buying and Selling Shares: What to Be Aware Of
Buying and selling shares is no longer something that drums up visions of well dressed stockbrokers waving their arms about frantically on Wall Street. After a spell of great success in the 80s, followed by something of a slump in the 90s, buying and selling share is rapidly becoming fashionable again - and thanks to the Internet has never been more accessible.
How Do You Buy & Sell Shares Without Getting Caught Out?First of all, remember that you should never invest money that you cannot afford to lose. Nothing is certain with shares and if things go wrong, you need to be able to afford to cover your losses. Share-dealing can be addictive and just like with gambling it's very easy to hedge your bets on a 'sure thing' that doesn't work out.
Secondly, don't expect to have your retirement fund finished by the end of the year - it's highly unlikely that you will see a quick return on your investment. Trading in shares is a long term venture and while you need to keep an eye on them to make sure nothing has gone badly wrong, you shouldn't take too much notice of small movements in either direction.
Decide What Kind of Investor You are Going to BeThere are thousands of share options available and before you choose where to put your money you need to have an idea of what you are hoping to gain from your investment as it will affect the way you trade.
Before you start trading in shares you need to ask yourself why you are investing - is it to make you more money in the short-term (5-10 years), or is it for your future?
If you're a risk-taker and you plan on trying to grow your pension pot, then you might want to look at overseas markets that carry a bigger risk and so can have a bigger payoff. If you're not big on risk and you’re playing it safe, then think about investing in big UK based companies - take a look at the FTSE100 to see some of the safest options.
Where Do You Find Information on Shares?There are plenty of places you can go to look at shares. Most newspapers have a finance section, at least once a week and at the weekend. There are magazines which specialise in share-dealing and the internet is full of websites that can point you in the right direction and give you helpful tips along the way.
Different ways of share-dealing
When you start investing in shares, there are a couple of terms you need to be familiar with.
- Collective Investment: collective investment refers to an investment where you put your money in with other investors' and buy a number of shares that spread across different markets, industries and companies.
There are three major types of collective investment :
- Investment Trust: a company that sells shares at a price which is determined by the demand and their value.
- Unit Trust: Unit Trusts buy shares across a number of markets, companies and sectors through a fund manager. The way Unit Trusts work is this: When you buy units in the fund, if more people want to buy units then more are created and the fund gets bigger and can buy bigger.
- Open Ended Investment Companies (OEICS) : Sort of a cross between the Unit Trust and Investment funds. Unit numbers can grow or decrease dependent on the demand for them but a company holds the investment.
If you don't want to opt for one of these, you can buy shares directly, but it is recommended that you choose shares from a minimum of around six or seven companies to spread the risk out.
Buying and Selling SharesWhen it comes to buying your shares, you will need to choose whether you use a stockbroker, do it yourself online or go through your bank.
If you want to do it yourself, make sure you go to a reputable website where you should be able to buy shares from around £10 a trade. This is the easiest way to do it but you do need to be careful as sites are not regulated, and you can get ripped off.
If you choose to go with a stockbroker, then find out in advance how much they will charge to deal for you. For rule of thumb, you shouldn't pay more than 2% of any single transaction in fees.
Holding SharesWhen you buy shares you can opt to hold the share certificates on paper, but when you want to sell them this will increase the transaction time. If you buy and sell your shares via a stockbroker, they can hold your shares for you in a nominee account.
If you buy them online you can opt to hold them through CREST, which is a system that costs £10 per year membership and electronically transfers shares between a buyer and a seller.
TaxRemember that tax plays a big part in buying and selling shares. Selling shares will cost you 0.5% of the transaction (or a minimum of £5) in stamp duty and income tax is payable on any dividends.
If you do well from your shares you may incur capital gains tax. Don’t forget that you can avoid the tax-man a little by investing some of your shares into a tax-free ISA - or Individual Savings Account.